Chapter 001 Introducing Accounting in Business
Summary of Questions by Difficulty Level (DL) and Learning Objective (LO)
True/False
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Multiple Choice
Item / DL / LO / Item / DL / LO / Item / DL / LO94 / Med / C1 / 133. / Hard / C5 / Med / A2
Med / C1 / 134. / Hard / C5 / Med / A2
Hard / C1 / 135. / Hard / C5 / Med / A2
Easy / C2 / 136. / Hard / C5 / Hard / A2
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Med / C5 / Easy / A2 / 207. / Hard / P1
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Hard / C5 / Med / A2 / 209 / Hard / P1
Hard / C5 / Med / A2 / 210 / Hard / P1
211 / Hard / P1
212 / Hard / P1
Matching
Item / DL / LO / Item / DL / LO / Item / DL / LO213. / Med / C1-C6 / 217. / Med / C5,A1,P1 / 221. / Med / P1
214. / Med / C1-C4, A1 / 218. / Med / C5,A1,P1 / 222. / Med / P1
215. / Easy / C2 / 219 / Med / A1 / 223. / Med / P1
216. / Hard / C5 / 220. / Med / A1
Short Essay
Item / DL / LO / Item / DL / LO / Item / DL / LO224. / Med / C1 / 231. / Med / C5 / 238. / Med / A1
225. / Med / C1 / 232. / Med / C5 / 239. / Hard / A1
226. / Hard / C2 / 233. / Med / C5 / 240. / Med / A3
227. / Hard / C2 / 234. / Hard / C5 / 241. / Hard / A4
228. / Med / C3 / 235. / Hard / C5 / 242. / Easy / P1
229. / Hard / C4 / 236. / Med / C6 / 243. / Med / P1
230. / Med / C5 / 237. / Med / A1 / 244. / Hard / P1
Problems
Item / DL / LO / Item / DL / LO / Item / DL / LO245 / Med / C5 / 260. / Med / A2 / 275. / Med / P1
246. / Med / C5 / 261. / Med / A2 / 276. / Med / P1
247. / Med / C5 / 262. / Med / A2 / 277. / Med / P1
248. / Hard / C5 / 263. / Med / A2 / 278. / Med / P1
249. / Easy / A1 / 264. / Med / A2 / 279. / Med / P1
250. / Easy / A1 / 265. / Med / A2 / 280. / Med / P1
251. / Easy / A1 / 266. / Med / A2 / 281. / Hard / P1
252. / Hard / A1 / 267. / Med / A2 / 282. / Hard / P1
253. / Hard / A1 / 268. / Hard / A2 / 283. / Hard / P1
254. / Hard / A1,P1 / 269. / Hard / A3 / 284. / Hard / P1
255. / Easy / A2 / 270. / Hard / A3 / 285. / Hard / P1
256. / Easy / A2 / 271. / Hard / A4 / 286. / Hard / P1
257. / Easy / A2 / 272. / Easy / P1 / 287. / Hard / P1
258. / Easy / A2 / 273. / Easy / P1 / 288. / Hard / P1
259. / Easy / A2 / 274. / Med / P1 / 289. / Hard / P1
Completion Problems
Item / DL / LO / Item / DL / LO / Item / DL / LOMed / C1 / Hard / C5 / Med / A1
Hard / C1 / Easy / C6 / Med / A1
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True / False Questions
1.Accounting is an information and measurement system that identifies records and communicates financial information to users.
TrueFalse
2.Bookkeeping is the sole purpose of accounting.
TrueFalse
3.Bookkeeping is the recording of transactions and events and is only part of accounting.
TrueFalse
4.Accounting is one way important information about businesses is reported to decision makers.
TrueFalse
5.Managerial accounting is an area of accounting that provides internal reports to assist the decision making needs of internal users.
TrueFalse
6.The internal operating functions of businesses include research and development, distribution and human resources.
TrueFalse
7.The primary objective of financial accounting is to provide general-purpose financial statements to help external users analyze and interpret an organization's activities.
TrueFalse
8.An external audit report is a professional opinion about whether the financial statements are prepared according to generally accepted accounting principles.
TrueFalse
9.External users of accounting information include lenders, shareholders, customers and regulators.
TrueFalse
10.Internal users of accounting information include lenders, shareholders, brokers and managers.
TrueFalse
11.Job-related opportunities in accounting include auditing, management consulting and tax planning.
TrueFalse
12.Accounting information is communicated to various parties through financial statements.
TrueFalse
13.Identifying the proper ethical path is always easy.
TrueFalse
14.Ethics are not important to the primary functions of accounting.
TrueFalse
15.Good ethics are good business.
TrueFalse
16.Auditors are banned from direct investment in their clients.
TrueFalse
17.A partnership is a business owned by two or more people.
TrueFalse
18.Ownership of a corporation is divided into units called shares or stock.
TrueFalse
19.In the partnership form of business, owners are called stockholders.
TrueFalse
20.A sole proprietorship is one or more owners selling products or services for profit.
TrueFalse
21.The Financial Accounting Standards Board is the private group that sets both broad and specific accounting principles.
TrueFalse
22.The business entity assumption means that a business will continue operating for an indefinite period of time.
TrueFalse
23.Generally accepted accounting principles are the basic assumptions, concepts and guidelines for preparing financial statements.
TrueFalse
24.The business entity assumption requires that a business be accounted for separately from other business entities, including its owner or owners.
TrueFalse
25.As a rule, revenues must not be recognized in the accounting records until received in cash.
TrueFalse
26.Specific accounting principles are basic assumptions, concepts and guidelines for preparing financial statements that arise out of long-used accounting practices.
TrueFalse
27.Generally accepted accounting principles arise from long-used accounting practices.
TrueFalse
28.A sole proprietorship is a business owned by one or more persons.
TrueFalse
29.Unlimited liability is an advantage of all sole proprietorships.
TrueFalse
30.Understanding generally accepted accounting principles is not necessary to use and interpret financial statements.
TrueFalse
31.The International Accounting Standards Board (IASB) has the authority to impose its standards on companies around the world.
TrueFalse
32.The objectivity principle prescribes that financial accounting information is supported by independent unbiased evidence.
TrueFalse
33.The assumption that a business will continue to operate only until it can sell its assets to pay its creditors is known as the going-concern principle.
TrueFalse
34.According to the cost principle, it is preferable for managers to report the most current estimate of an asset's value.
TrueFalse
35.The monetary unit principle prescribes that all international transactions must be expressed in dollars and euros.
TrueFalse
36.The International Accounting Standards Board (IASB) is the government group that establishes reporting requirements for companies that issue stock to the public.
TrueFalse
37.A limited liability company offers the limited liability of a partnership or proprietorship and the tax treatment of a corporation.
TrueFalse
38.The Securities and Exchange Commission (SEC) is an agency of the federal government that establishes reporting requirements for companies that issue stock to the public.
TrueFalse
39.The Securities and Exchange Commission (SEC) is the private group that sets both broad and specific accounting standards.
TrueFalse
40.The three forms of business ownership are sole proprietorship, partnership and non-profit.
TrueFalse
41.The three major activities of a business are operating, investing and financing.
TrueFalse
42.Planning refers to defining an organization's ideas, goals and actions.
TrueFalse
43.Strategic management is the process of determining the right mix of operating activities for the type of organization, its plans and its markets.
TrueFalse
44.Planning activities are the means an organization uses to pay for resources like land, buildings and equipment to carry out its plans.
TrueFalse
45.The three major activities of a business are recording, financing and investing.
TrueFalse
46.Investing activities are the acquiring and selling of resources that an organization uses in its operations.
TrueFalse
47.Owner financing refers to resources contributed by creditors or lenders.
TrueFalse
48.Revenues are increases in retained earnings from a company's earnings activities.
TrueFalse
49.A net loss arises when revenues exceed expenses.
TrueFalse
50.Net income occurs when revenues exceed expenses.
TrueFalse
51.Expenses decrease retained earnings and are the costs of assets or services used to earn revenues.
TrueFalse
52.Liabilities are the owner's claim on assets.
TrueFalse
53.Assets are the resources owned or controlled by a business.
TrueFalse
54.Dividends are expenses of a business.
TrueFalse
55.The accounting equation can be restated as: Assets - Equity = Liabilities.
TrueFalse
56.Net income is the excess of expenses over revenues, whereas net loss is the excess of revenues over expenses.
TrueFalse
57.EDGAR is a database of documents that public companies file electronically with the SEC.
TrueFalse
58.The accounting equation implies that: Assets + Liabilities = Equity.
TrueFalse
59.Revenues occur when expenses exceed assets.
TrueFalse
60.A company might provide a service or product on credit. "On credit" implies that the cash payment will occur on a later date.
TrueFalse
61.Contributed capital is the gross increase in equity from a company's earnings activities.
TrueFalse
62.The legitimate claims of a business's creditors take precedence over the claims of its stockholders.
TrueFalse
63.Every business transaction leaves the accounting equation in balance.
TrueFalse
64.An external transaction is an exchange of value within an organization.
TrueFalse
65.From an accounting perspective, an event is a happening that affects an entity's accounting equation, but cannot be measured.
TrueFalse
66.Retained earnings are increased when cash is received from customers in payment of previously recorded accounts receivable.
TrueFalse
67.An owner's investment in a business always creates an asset (cash), a liability (note payable) and equity (common stock).
TrueFalse
68.Net assets always increase when revenue is recorded.
TrueFalse
69.Return on assets is often stated in ratio form and is computed as the amount of average total assets divided by income.
TrueFalse
70.Return on assets is also known as return on investment.
TrueFalse
71.Return on assets is useful to decision makers for evaluating management, analyzing and forecasting profits and in planning activities.
TrueFalse
72.Reebok's net income of $119 million and average assets of $1,400 million results in a return on assets of 8.5%.
TrueFalse
73.Return on assets measures the ability of an organization to earn a profit based on the amount of its assets.
TrueFalse
74.Risk is the amount of uncertainty about the return we expect to earn.
TrueFalse
75.Generally, the lower the risk, the lower the return that can be expected.
TrueFalse
76.U.S. Government Treasury bonds all provide high return and low risk to investors.
TrueFalse
77.The balance sheet shows whether or not the firm achieved its primary objective of earning a profit.
TrueFalse
78.The four basic financial statements include the balance sheet, income statement, statement of retained earnings and statement of cash flows.
TrueFalse
79.An income statement reports only on investing and financing activities.
TrueFalse
80.A balance sheet covers a period of time such as a month or year.
TrueFalse
81.The income statement is a financial statement that shows revenues earned and expenses incurred during a specified period of time.
TrueFalse
82.The statement of cash flows shows the net effect of revenues and expenses for a reporting period.
TrueFalse
83.The income statement shows the financial position of a business on a specific date.
TrueFalse
84.The first section of the income statement reports cash from operations.
TrueFalse
85.The balance sheet is based on the accounting equation.
TrueFalse
86.Owner's investments and dividends are reported on the income statement.
TrueFalse
87.Investing activities involve the buying and selling of assets such as land and equipment that are held for long-term use in the business.
TrueFalse
88.Operating activities include long-term borrowing and repaying cash from lenders and cash investments by owners or dividends to the owner.
TrueFalse
89.The purchase of supplies must appear on the statement of cash flows as an investing activity because it involves the purchase of assets.
TrueFalse
90.The income statement reports on operating activities at a point in time.
TrueFalse
91.The statement of cash flows reports on cash flows separated into operating, investing and financing activities over a period of time.
TrueFalse
92.Chuck Taylor invested $175,000 in cash in Fast-Forward. This amount would be reported in the statement of cash flows under financing activities.
TrueFalse
93.Fast-Forward paid $6,000 in dividends. This amount should be included as an expense on the income statement.
TrueFalse
Multiple Choice Questions
94.Accounting is an information and measurement system that:
A.Identifies business activities
B.Records business activities
C.Communicates business activities
D.Helps people make better decisions
E.All of the above
95.Technological advancement
A.Has replaced accounting
B.Has not changed the work that accountants do
C.Has freed accounting professionals to concentrate more on the analysis and interpretation of information
D.In accounting has replaced the need for decision makers
E.In accounting is only available to large corporations
96.Identifying business activities requires selecting transactions and events relevant to an organization. Which of the following events would be recorded in the accounting records of Acme Car Wash?
A.Acme washes 500 cars
B.J.B. Smith, a customer, buys lunch at the restaurant next door to Acme while waiting for her car to be washed
C.Clean Company, a supplier, sells 50 pounds of soap to Acme
D.A and B
E.A and C
97.External users of accounting information include:
A.Shareholders
B.Customers
C.Creditors
D.Government regulators
E.All of the above
98.The primary objective of financial accounting is:
A.To serve the decision-making needs of internal users
B.To provide financial statements to help external users analyze and interpret an organization's activities
C.To monitor and control company activities
D.To provide information on both the costs and benefits of managing products and services
E.To know what, when and how much to produce
99.Internal users of accounting information always include:
A.Shareholders
B.Managers
C.Lenders
D.Suppliers
E.Customers
100.The area of accounting aimed at serving the decision making needs of internal users is:
A.Financial accounting
B.Managerial accounting
C.External auditing
D.SEC reporting
E.Governmental accounting
101.The operating functions of a business include:
A.Research and development
B.Purchasing
C.Marketing
D.Distribution
E.All of the above
102.Which of the following statements is true of external information users?
A.They are directly involved in managing the organization
B.Their needs are met by the managerial area of accounting
C.They have limited access to an organization's accounting information
D.They use accounting information to help improve the efficiency and effectiveness of an organization
E.They are the only users of accounting information who rely on internal controls to monitor company activities
103.Career opportunities in accounting include the fields of:
A.Auditing
B.Management consulting
C.Tax accounting
D.Cost accounting
E.All of the above
104.Career opportunities in accounting include the fields of:
A.Budgeting
B.Auditing
C.Cost accounting
D.Internal Auditing
E.All of the above
105.Accounting certifications include the:
A.Certified Public Accountant
B.Certified Management Accountant
C.Certified Internal Auditor
D.Chartered Financial Analyst
E.All of the above
106.A Certified Public Accountant:
A.Must meet education and experience requirements
B.Must pass an examination
C.Must exhibit ethical character
D.Can also be a Certified Management Accountant?
E.All of the above
107.Several career options are listed below. Which list contains a job NOT representative of the careers available to students who have earned an accounting degree?
A.FBI investigations, market research and auditing
B.Auditing, tax preparation and bookkeeping
C.Systems design, auditing and estate planning
D.Budgeting, litigation support and auditing
E.Internal auditing, budgeting and tax preparation
108.Ethical behavior requires:
A.That an auditors' pay not depend on the figures in the client's reports
B.Auditors to invest in businesses they audit
C.Analysts to report information favorable to their companies
D.Managers to use accounting information to benefit themselves
E.All of the above
109.Social responsibility:
A.Is a concern for the impact of one's actions on society as a whole?
B.Is a code that helps in dealing with confidential information?
C.Is required by the SEC
D.Requires that all businesses conduct social audits
E.All of the above
110.Ethics:
A.Are beliefs that separate right from wrong?
B.And laws often coincide
C.Help to prevent conflicts of interest
D.Are crucial in accounting
E.All of the above
111.The accounting guideline prescribing that financial statement information be supported by independent, unbiased evidence other than someone's belief or opinion is the:
A.Business entity principle
B.Monetary unit principle
C.Going-concern principle
D.Cost principle
E.Objectivity principle
112.Businesses can take the following form(s):
A.Sole proprietorship
B.Common stock
C.Partnership
D.A and C only
E.All of the above
113.A corporation:
A.Is a legal entity separate and distinct from its owners?
B.Is controlled by the FASB
C.Has shareholders who have unlimited liability for the acts of the corporation
D.Is the same as a limited liability partnership?
E.All of the above
114.The rules adopted by the accounting profession as guides in preparing financial statements are:
A.Comprised of both general and specific principles
B.Known as generally accepted accounting principles
C.Abbreviated as GAAP
D.Intended to make information in financial statements relevant, reliable and comparable
E.All of the above
115.The organization that attempts to create more harmony among the accounting practices of different countries by identifying preferred practices and encouraging their worldwide acceptance is the:
A.AICPA
B.FASB
C.CAP
D.SEC
E.IASB
116.The private board that currently has the authority to establish U.S. generally accepted accounting principles is the:
A.APB
B.FASB
C.AAA
D.AICPA
E.SEC
117.The principle prescribing that every business be accounted for separately and distinctly from its owner or owners is known as the:
A.Objectivity principle
B.Business entity principle
C.Going-concern principle
D.Revenue recognition principle
E.Cost principle